Why the blazing summer will send food prices soaring

Britain’s heatwave spells rising prices ahead – and climate change means we need to get used to such shocks. By Nick Hughes.

The weather can play funny tricks on the mind. It takes but a few days of grey skies and morning chills for months of blazing sunshine to recede into the distant memory.

As the long, hot summer of 2019 finally gives way to first autumn and then winter, those of us seeking a reminder of the unprecedented heatwave won’t have far to look. From the price of carrots on supermarket shelves to the cost of a cheeseboard at the end of a meal, the legacy of the record UK temperatures experienced in June and July is likely to last well into 2019 in the shape of the soaring cost of food.

Farming groups are rightly keen to point out that in recent years the low cost of food has been critical in keeping the overall level of inflation in check. However, a new report from the consultancy CEBR estimates that average prices will rise by 5% in the coming months, adding more than £7 to the average monthly shopping bill. Domestic food production has been battered by the cumulative effects of a cold and wet winter followed by a period of prolonged drought. CEBR reports that from March to July the farm-gate price of onions (+41%), carrots (+80%), lettuce (+61%), wheat for bread (+20%) and strawberries (+28%) rose by a fifth or more each. Dairy production has also suffered, as has wheat, while livestock prices are expected to be affected in the longer term by a shortage of animal feed.

Any food business at the consumer end of the supply chain that is not already planning for price rises is likely to be in for a shock come the winter. So which are the commodities most affected, and what can businesses do to mitigate the impact and ensure a stable supply of quality, authentic food for the remainder of this year and into next?

Although many of the most severe impacts will not be felt until later in the year, data suggests consumers are already starting to feel the pinch. The British Retail Consortium reported that UK shop prices rose for the first time in five years in August, driven by a 1.9% increase in the price of food. Inflation in foodservice prices, meanwhile, reached 3.2% in July, according to the new Foodservice Price Index from CGA and Prestige Purchasing. Volatility in currency exchange rates and labour shortages compounded the problems caused by challenging weather conditions.

Root vegetables and brassicas have been particularly badly hit, with yields of parsnips, cauliflower and broccoli down and the quality and size of products suffering. Potatoes – a foodservice staple – are also in short supply and reserves held in cold stores are unlikely to be sufficient to meet demand from packing and peeling markets.

Dairy farmers are another group feeling the strain. The lack of grass has forced farmers to buy in feed or start using silage set aside for winter use, while some have resorted to selling off cows to reduce costs. The Agriculture and Horticulture Development Board reports that while milk production is likely to be affected over the coming weeks, the bigger impact is expected later in the year as feed stocks come under pressure. The knock-on effect will be felt throughout the dairy supply chain. If milk prices rise to the point where it becomes more profitable for cheese and butter makers to sell milk on the open market rather than putting it through their own factory, stocks will fall and prices of value-added dairy products can be expected to rise. Ireland, which is a major market for cheese destined for UK retail and foodservice, is having its own weather issues and is unlikely to be able to bail out UK suppliers.

Meat prices are also vulnerable to future price rises as feed is in high demand at a time when the supply of grains is expected to come under pressure. CEBR points out that much of the UK’s grain is imported from Europe, which has also seen record high temperatures this year. Reserves have kept prices from spiking drastically thus far, but industry forecasts and futures prices point towards imminent increases. Wheat is a particular concern. The harvest is forecast to be down by 5% this year and European wheat futures are currently trading about 30% higher than at the end of April.

The good news for buyers, according to Prestige Purchasing chairman, David Read, is that most foodservice operators have ample opportunity to reset costs to 2017 levels by optimising their supply chains. “Essentially, this means just two initiatives – changing things that you do today that make your supply chain inefficient and managing your supply markets better,” says Read. “Many caterers create their own inefficiency by not actively managing the range of products bought, delivery frequency or product specification, or indeed a range of other metrics that can build unnecessary cost within suppliers, which of course get passed back. Similarly, a data-driven plan for both sourcing and distribution of ingredients at a line-item level is a prerequisite of success, which these days can be easily measured by accessing benchmark prices from third parties.”

Even if suppliers are able to act decisively to guarantee adequate product supplies they will need to be extra vigilant over quality and provenance. Food integrity experts frequently cite commodity price fluctuations as a clear indicator of the risk of fraud. In his government review, Chris Elliott noted that crop failures can be expected to be followed by increasing raw materials costs and, if these are not reflected by changing prices in the supply chain, it should trigger an industry-wide alert. The horsemeat scandal came about in part because the price of beef was considerably higher than the price of horse. Substitution of one species for another presented a lucrative opportunity that fraudsters could not resist exploiting. Deceiving buyers about the quality and provenance of produce is likely to prove similarly tempting.

In the short term, attention will turn to the task of mitigating the impact of price rises on costs and margins, but in the longer term the questions this summer poses for our food supply are more far-reaching. Scientists are unanimous that such extreme weather events will become increasingly common in a warming world. Food production is predicted to be a major victim of climate change but it is also contributing to its own predicament. Greenhouse gas emissions from the livestock sector alone are estimated to account for almost 15% of the global total.

The food industry is faced with the paradox of needing to keep shelves full and prices low while preserving a healthy long-term environment that supports stable production. As yet there appears little consensus on how to square the circle.

Price shocks may have historically been rare events, but without decisive action to address the challenges facing our food system they are likely to become a permanent fixture of future forecasts.

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